That's one of the questions Bernstein's Toni Sacconaghi (who covers Apple) and Alberto Moel (who covers Corning) set out to answer in a two-part report to clients issued Wednesday -- the same, day, coincidentally, that Arizona Gov. Jan Brewer vetoed a controversial anti-gay bill that Apple opposed.
The other question they address is who came out ahead in the deal Apple signed with GT Advanced Technologies (GTAT), which has contracted to provide enough crystal growing capacity to make, Moel estimates, the equivalent of up to 25 million smartphone covers a quarter.
Their reports represent the deepest dive I've seen yet into sapphire, its unique properties (Moel calls it a "wonder material"), its industrial uses, and what promise it might hold for Apple.
The two analysts don't have a definitive answer for that last part, except to demolish the theory that sapphire crystal will replace Corning's (GLW) Gorilla Glass screen on the iPhone anytime soon, except perhaps as a laminate. (Why would Apple, which already owns the high-end smartphone market, replace a $3 screen with a $15 crystal that would probably shatter even more easily?)
Which makes their analysis of the deal even more interesting. Basically, Apple has paid $113 million for an empty factory and loaned GT $578 million to purchase, install and operate the world's largest sapphire crystal-growing plant. GT gets a huge bump in its income and a lot of press and prestige, but it's assuming most of the risk. Apple is paying for the capacity, but it hasn't promised to buy all -- or even any -- of the sapphire GT makes.
From Apple's point of view, it's a pretty sweet deal. As Moel writes:
For Apple, this transaction is an opportunity to lock up the supply chain in a technology that Apple has decided is important as a differentiator of its product portfolio or product performance. How exactly remains to be seen, but the relatively "small" amount of money involved (from Apple's perspective, with its $142 billion net cash hoard), and the fact that Apple carries effectively zero risk in the transaction, makes it worth Apple's attention. Effectively Apple has entered into a supply lock-up and technology hedge for zero or very little relative cost. If it does not work, either because the technology does not deliver, or consumers do not care for it enough to pay either with better margins or higher unit shipments, Apple is out at most a small amount from its pocket.
In separate piece posted same day on Seeking Alpha, Deloitte CRG's Matt Lew looks at the deal from a higher altitude:
Supplier arrangements like the GTAT deal are in Apple's DNA -- it's just the way they do things. You can look back to Apple's stronghold on the NAND flash memory market, which required multi-billion dollar upfront payments -- a move that proved to be genius as personal electronics began the tectonic shift from hard-drives to flash storage. You can also look at its prepaid deals with freight companies to ensure capacity over the holiday season, which can influence worldwide freight costs. More recently, you can look to Asian suppliers / manufacturers like Hon Hai (Foxconn), Catcher, and others that Apple has locked into exclusivity deals that kept many out for a long time. Apple's MacBook Air had a unibody aluminum chassis that was, and still is, the gold standard in the new 'ultra-portable' PC market. Many wondered why Windows PC OEMs could not replicate it and the simple answer is, they could not even if they wanted to. Apple had exclusivity agreements with manufacturers (like Catcher) to produce the extremely complex aluminum unibody designs.
"And that," Lew concludes, "is the Apple way."
Apple suffers as Samsung cuts third quarter Galaxy S4 production by an estimated 25%.
FORTUNE -- You would think that bad news for Samsung's smartphones would be good news for Apple (AAPL). But that's not how Wall Street sees it, according to Bernstein's Toni Sacconaghi.
In an CNBC interview Monday, Sacconaghi listed among the reasons for Apple recent weakness (down 6.8% in a week) the Street's concerns about "Samsung's high end product perhaps MOREPhilip Elmer-DeWitt - Jun 25, 2013 7:50 AM ET
Unless, says Bernstein's Sacconaghi, Apple introduces new iPhones this summer.
FORTUNE -- The chart at right represents the worst case scenario for Apple's (AAPL) share of the global smartphone market, as forecast Monday by Sanford Bernstein's Toni Sacconaghi.
Using Apple's own numbers for fiscal Q2, Sacconaghi calculates that iPhone sales grew 7% year over year in a sell-in basis (12% in a sell-through basis) while the overall smartphone market grew by about 36%. The MOREPhilip Elmer-DeWitt - Apr 29, 2013 4:51 PM ET
Bernstein's Apple analyst says investors are expecting the equivalent of a 4.5% yield.
FORTUNE -- According to Bernstein Research's Toni Sacconaghi, Apple's (AAPL) top brass has been holding "widespread discussions" with key investors to get input on its plans to return more of its $137.1 billion cash hoard to shareholders.
Sacconaghi has been debriefing those investors and now thinks he has a pretty good idea of how Apple's cash management plans have MOREPhilip Elmer-DeWitt - Apr 15, 2013 11:20 AM ET
Over the past 8 quarters, it beat its EPS estimate by 42%, revenue by 18%
FORTUNE -- When it reports its results for the March quarter this afternoon, Apple (AAPL) will also release forward-looking statements about the June quarter in the form of three numbers: its guidance for revenue, earnings and gross margin.
The numbers Apple issues tend to be laughably conservative; the company always prefers to under- rather than over-promise. Nonetheless its MOREPhilip Elmer-DeWitt - Apr 24, 2012 8:15 AM ET
And re-sold it to consumers for billions more than it paid, according to Toni Sacconaghi
The only difference between a 16 GB iPhone 4S and the 32 GB model is 16 GB of NAND flash memory, for which Apple (AAPL) charges customers $100.
But according to Bernstein Research's Toni Sacconaghi, Apple buys that memory for a heavily discounted price of $0.67 per gigabyte, or a total $10.72.
That's a pretty sweet mark-up. And an MOREPhilip Elmer-DeWitt - Jan 6, 2012 11:39 AM ET
Bernstein's top Apple analyst joins the chorus questioning the stock's dismal valuation
Last week, Morgan Stanley's Katy Huberty noted that Apple's (AAPL) current stock price suggests that the market is expecting the company's earnings to grow minus 2% in perpetuity. (See here.)
In the first of a two-part series, Bernstein's Toni Sacconaghi on Monday drilled a little deeper into that -2% growth rate and found a series of what he calls "fantastically MOREPhilip Elmer-DeWitt - Dec 13, 2011 7:58 AM ET
CapEx spending is up 9 fold in 3 years, the bulk on equipment for a few key suppliers
When Apple (AAPL) reports an uptick in its cash and marketable securities holdings -- up $5.4 billion to $81.6 billion last quarter -- Bernstein's Toni Sacconaghi can usually be counted on to call for the company to return some of that cash to the shareholders (70% of whom happen to be institutions like MOREPhilip Elmer-DeWitt - Nov 15, 2011 8:12 AM ET
An analyst imagines everything it might be when -- and if -- it opens this spring
Among the people who follow Apple (AAPL) closely, the massive server farm the company is constructing in Maiden, N.C., has achieved near mythic status. It has become the answer to every unanswered question about Apple's troubled online strategy, from what Steve Jobs was thinking when he green-lighted Ping to how MacBook Air users are supposed MOREPhilip Elmer-DeWitt - Mar 23, 2011 6:13 AM ET
An analyst offers four reasons nobody has managed to match Apple's iPad
"Undercutting Apple on pricing has been the de facto strategy for competitors. Surprisingly then, no competitor has yet matched Apple on tablet pricing, which begs the question of why."
So begins a note to clients issued Wednesday morning by Bernstein Research's Toni Sacconaghi, who estimates that Apple (AAPL) may have a 750 to 975 basis point (7.5% to 9.75%) cost MOREPhilip Elmer-DeWitt - Mar 2, 2011 11:22 AM ET
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